Bajaj Auto June quarter profit up 2.7%

The strike at Bajaj Auto’s facility in Chakan near Pune continues as the management and the union have failed to reach an agreement over wage hikes and the issuing of stocks to workers at a discounted rate.

Updated: Fri, Jul 19 2013. 08 09 PM IST

Bajaj Auto Ltd, the country’s second-largest motorcycle maker, posted a 2.7% increase in net profit for the June quarter, nearly in line with analysts’ estimates, helped by the rupee’s rapid depreciation.

Profit increased to Rs.737 crore from Rs.718 crore a year ago, while sales rose to Rs.4,808 crore from Rs.4,651 crore, the company said in a filing to the stock exchanges.

A Bloomberg polls of analysts had pegged profit at Rs.740 crore and sales at Rs.4,838 crore.

Better realization from exports as the rupee weakened against the dollar to all-time lows bumped up margins and revenue, but overall motorcycle sales volumes dropped 12% from a year ago to 860,151 units in the June quarter.

“Bajaj Auto’s strategy over the last several years to focus on international markets has paid rich dividends,” the company said in a statement on Friday. “Taking into account the current trend of the rupee vis-a-vis the US dollar and the current position of hedged contracts, a further benefit on account of depreciating rupee would accrue to the company in the coming quarters.”

Exports account for around 35% of the company’s revenue.

Surjit Singh Arora, analyst at Prabhudas Lilladher Pvt. Ltd, said the higher contribution of three-wheelers to sales strengthened margins. “Given the current scenario, the margins are commendable,” he said.

Sales of commercial vehicles, including three-wheelers, in the export and domestic markets jumped 24% to 119,124 units in the fiscal first quarter. Three-wheelers fetch the firm better margins than two-wheelers, about 30% against 18%, according to Arora.

Between April and June, India’s slowing economy, high fuel prices and negative buyer sentiment slowed domestic motorcycle sales for Bajaj, especially as demand for premium bikes, where Bajaj Auto has a 46% share, declined.

Sales of premium bikes contracted 11%, the company said. Bajaj plans to launch five to six variants of its Discover model in the months until December and this should help it shore up volumes, said Rajiv Bajaj, managing director, Bajaj Auto, in an interview to the CNBC-TV18 business news channel after the earnings were announced.

The company’s overall share in the motorcycle market declined by a percentage point to 23%. One basis point is one-hundredth of a percentage point.

The industry’s sales of motorcycles and mopeds declined 4% to 2.5 million units in the three months to June, according to the Society of Indian Automobile Manufacturers.

ICRA Ltd, the associate of rating agency Moody’s Investor Services, expects the domestic two-wheeler industry volumes to remain unchanged in 2013-14 because of slowing demand and as the base effect catches up with the industry that had a healthy volume expansion in the past three years at a cumulative annual growth rate of 13.8%.

Overseas sales in some of the company’s key export destinations such as Nigeria, Egypt and Sri Lanka were affected owing to a combination of factors such as political crises and changes in government policy, the company said.

Meanwhile, a strike at the company’s Chakan facility near Pune continues as the management and the union haven’t been able to reach an agreement over wage hikes and on issuing stocks to workers at a discounted rate. Bajaj Auto has asked the industrial court to declare the strike illegal.

The workers have been on strike since 25 June. The plant produces the company’s flagship brand Pulsar, among others. The strike has led to a loss in sales of 20,000 Pulsars since 25 June.

In the June quarter, Bajaj provided for a Rs.96 crore mark-to-market (MTM) loss on range forward option contracts, which are notional in nature and would be reversed over the tenure of the contract.

“Adjusted for MTM loss, earnings before interest, tax, depreciation and amortization (Ebitda) at 20.4% were strong as the company benefited from weak rupee,” Arun Agrawal, analyst at Kotak Securities, said in a note after the earnings were announced. “For fiscal 2014, volume growth outlook is subdued but rupee depreciation will be positive for the company’s Ebitda margin.”

The rupee depreciated 8.6% against the dollar in the three months to June.

Bajaj received a value added tax (VAT) refund of Rs.900 crore in the July-September quarter from the Maharashtra government. This, according to Mitul Shah, analyst at Karvy Stock Broking Ltd, will “result in higher non-operating income on investment going forward.”

Also, Bajaj’s current hedging for fiscal 2015 at Rs.60 per dollar will translate into much better margins going forward, said Shah. He reiterated his ‘buy’ rating on Bajaj Auto.

Bajaj Auto shares gained 3.68% to close at Rs.1,967.05 apiece on BSE, while the benchmark index Sensex closed at 20,149.85 points, up 0.11%.